2006 (3) TMI 112 - HC - Income Tax

Revision u/s 263 - Order passed by CIT - no reasons recorder - erroneous and prejudicial to the interests of the Revenue - HELD THAT - On receipt of the show-cause notice dated August 14/19,1996 the petitioner submitted an elaborate reply laying materials before the Commissioner to show that sufficient proof of income of the assessee was laid before the Assessing Officer to enable the said authority to come to the conclusion that the investments in the house property were made from the known sources of income of the assessee. The said materials were in the form of balance-sheets and details of the funds available to the petitioner from time to time. In the above facts the petitioner-assessee had contended that the assessment order in question was not erroneous and prejudicial to the interests of the Revenue. The CIT on receipt of the reply of the petitioner could not have ignored the same. Rather, it was incumbent on the Commissioner to consider the explanations offered and on that basis to record his opinion/conclusion as to whether he still considered the assessment order in question to be erroneous and prejudicial to the interests of the Revenue and, if so, the reasons therefore. The Commissioner did not do that. Instead, in the order dated November 1, 1996, the Commissioner has recorded that the assessee has filed a written submission giving an exhaustive explanation in 7 pages and enclosing copies of various deeds, certificates, etc., which were required to be verified in detail. The Commissioner, in the above facts, set aside the assessment order and directed the Assessing Officer to make a fresh assessment after examining the submissions and contentions advanced by the assessee and after due scrutiny of the documents adduced. The course of action adopted was clearly impermissible in law in the absence of a finding that on consideration of the explanations submitted and for the reasons shown the assessment has to be reiterated to be erroneous and prejudicial to the interests of the Revenue. Unfortunately, the Commissioner did not do so which omission will have the effect of rendering the impugned order dated November 1, 1996, legally fragile. Thus, I am of the view that this writ petition has to be allowed which I hereby do. The impugned order dated November 1, 1996, is accordingly set aide. The writ petition is accordingly allowed.

Issues Involved:
1. Legality of the Commissioner's order under Section 263 of the Income-tax Act, 1961.
2. Jurisdiction of the Commissioner to invoke Section 263 based on subsequent materials.
3. Requirement of a firm conclusion that the assessment order is erroneous and prejudicial to the interests of the Revenue.
4. Validity of the Commissioner's directive to reassess without recording a definitive opinion.
5. Impact of the criminal court's judgment on the ownership of the house property.

Detailed Analysis:

1. Legality of the Commissioner's order under Section 263 of the Income-tax Act, 1961:
The petitioner challenged the order dated November 1, 1996, passed by the Commissioner of Income-tax (CIT), which set aside the assessment for the year 1992-93 and directed a reassessment. The CIT invoked Section 263 of the Income-tax Act, citing that the original assessment was made without proper enquiry into the investment sources for the petitioner's house property.

2. Jurisdiction of the Commissioner to invoke Section 263 based on subsequent materials:
The petitioner argued that the CIT exceeded his jurisdiction by basing his decision on the CBI report, which came to light after the original assessment. The petitioner contended that the CIT's power under Section 263 should be based solely on the records available to the Assessing Officer at the time of the original assessment. The court, however, found this argument difficult to accept, noting that the CIT's satisfaction was primarily based on the lack of pre-assessment enquiries, and the CBI report only fortified this conclusion. The court referenced the apex court's judgment in State of Kerala v. K. M. Cheria Abdulla and Co. [1965] 16 STC 875, which allowed for further enquiry if necessary to rectify defects.

3. Requirement of a firm conclusion that the assessment order is erroneous and prejudicial to the interests of the Revenue:
The petitioner argued that the CIT did not record a definitive conclusion that the assessment order was erroneous and prejudicial to the interests of the Revenue. The court agreed, stating that the CIT must record such a conclusion after hearing the petitioner and considering the explanations provided. The court cited CIT v. Gabriel India Ltd. [1993] 203 ITR 108, emphasizing that both conditions must preexist for the CIT to exercise power under Section 263.

4. Validity of the Commissioner's directive to reassess without recording a definitive opinion:
The court found that the CIT's order merely set aside the assessment and directed a reassessment without recording a firm conclusion that the original assessment was erroneous and prejudicial to the interests of the Revenue. The court held that this course of action was impermissible, as the CIT must first consider the explanations and documents provided by the petitioner and then record a definitive opinion.

5. Impact of the criminal court's judgment on the ownership of the house property:
The petitioner submitted an additional affidavit, including a judgment from the Special Judge, Assam, exonerating the petitioner's son-in-law from liability concerning the house property and affirming that it belonged to the petitioner. The court noted that this judgment could not be ignored by the Revenue and concluded that any de novo proceedings would be futile and potentially harassing to the petitioner.

Conclusion:
The writ petition was allowed, and the impugned order dated November 1, 1996, was set aside. The court directed the Revenue to treat the assessment for the year 1992-93, completed on May 16, 1994, as final and complete, considering the findings of the Special Judge.

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